What is IFRS? As businesses across the global village converge to utilize their synergies, one of the important step towards uniform business practice and transparency is to bring standards around financial reporting and accounting. International Financial Reporting Standards (IFRS) is the path towards these common standards.
In this blog series, we would share the following insights around IFRS and enable discussion around this topic among our Business Process Experts.
- History of IFRS and why/how it came into existence
- Basic principles of IFRS
- IFRS roadmap by different countries
- List of IFRS
- IFRS deep dive on standards
- Significant differences between IFRS and country GAAP e.g. US GAAP
- How IFRS is enabled in SAP products
- How should your company plan for IFRS adoption
- What global opportunities exists for IFRS consultants…..and more
1. History of IFRS and why/how it came into existence The history of IFRS gained momentum when European Union decided to make IFRS mandatory for all listed companies in member nations from 2005.
The important reason for this convergence is to make sound business sense.Increasing proliferation of financial products across the globe has made it challenging for the controllers, auditors and business heads to follow different standards for different countries especially when they are looking beyond their country of operations. There was a need to find a Global financial reporting infrastructure.
Global standards would allow standardized training and assure quality of work on a global scale. In this most demanding days, flow of capital would be more free if central banks are assured of the standard financial practices that exists across the globe. Another goal of these standards would be to discourage people to adapt workarounds just to adapt to a particular rule based standard such as US GAAP to more a principles based standard such as IFRS. For examples some of the contract companies in US arrange for long term leases as operating lease even though they are actually capital lease, just to satisfy US GAAP. IFRS would likely make these more transparent and allow the flexibility for the enterprise to decide.
2. Basic principles of IFRS
Objective is to provide information about the financial position, performance and changes in the financial position of an entity that is useful to a wide range of users in making economic decisions. They are built with an underlying assumptions of accrual and going concern
Qualitative characteristics
- Understandable – Easy to understand, broken down into various groups
- Relevance – In the business context
- Reliability – Should be accurate
- Comparability – To be comparable with previous years
Elements
- Assets, Liabilities, Equity, Income and Expenses
More to come in the future blogs….
